Instructions for Form 8594

Instructions for Form 8594

Department of the Treasury

Internal Revenue Service

(Rev. November 2021)

Asset Acquisition Statement Under Section 1060

Section references are to the Internal Revenue

Code unless otherwise noted.

Future Developments

For the latest information about

developments related to Form 8594 and

its instructions, such as legislation

enacted after they were published, go to

IRS.gov/Form8594.

General Instructions

Purpose of Form

Both the seller and purchaser of a group of

assets that makes up a trade or business

must use Form 8594 to report such a sale

if goodwill or going concern value

attaches, or could attach, to such assets

and if the purchaser's basis in the assets

is determined only by the amount paid for

the assets.

Form 8594 must also be filed if the

purchaser or seller is amending an original

or a previously filed supplemental Form

8594 because of an increase or decrease

in the purchaser's cost of the assets or the

amount realized by the seller.

Who Must File

Generally, both the purchaser and seller

must file Form 8594 and attach it to their

income tax returns (Forms 1040, 1041,

1065, 1120, 1120-S, etc.) when there is a

transfer of a group of assets that makes

up a trade or business (defined below)

and the purchaser's basis in such assets

is determined wholly by the amount paid

for the assets. This applies whether the

group of assets constitutes a trade or

business in the hands of the seller, the

purchaser, or both.

If the purchaser or seller is a controlled

foreign corporation (CFC), each U.S.

shareholder should attach Form 8594 to

its Form 5471.

Exceptions. You are not required to file

Form 8594 if any of the following apply.

• A group of assets that makes up a trade

or business is exchanged for like-kind

property in a transaction to which section

1031 applies. If section 1031 does not

apply to all the assets transferred,

however, Form 8594 is required for the

part of the group of assets to which

section 1031 does not apply. For

information about such a transaction, see

Regulations sections 1.1031(j)-1(b) and

1.1060-1(b)(8).

• A partnership interest is transferred.

See Regulations section 1.755-1(d) for

Sep 08, 2021

special reporting requirements. However,

the purchase of a partnership interest that

is treated for federal income tax purposes

as a purchase of partnership assets,

which constitute a trade or business, is

subject to section 1060. In this case, the

purchaser must file Form 8594. See Rev.

Rul. 99-6, 1999-6 I.R.B. 6, available at

IRS.gov/pub/irs-irbs/irb99-06.pdf.

When To File

Generally, attach Form 8594 to your

income tax return for the year in which the

sale date occurred.

If the amount allocated to any asset is

increased or decreased after the year in

which the sale occurs, the seller and/or

purchaser (whoever is affected) must

complete Parts I and III of Form 8594 and

attach the form to the income tax return for

the year in which the increase or decrease

is taken into account.

Penalties

If you do not file a correct Form 8594 by

the due date of your return and you cannot

show reasonable cause, you may be

subject to penalties. See sections 6721

through 6724.

Definitions

Trade or business. A group of assets

makes up a trade or business if goodwill or

going concern value could under any

circumstances attach to such assets. A

group of assets can also qualify as a trade

or business if it qualifies as an active trade

or business under section 355 (relating to

distributions of stock in controlled

corporations).

Factors to consider in determining

whether goodwill or going concern value

could attach include:

• The presence of any section 197 or

other intangible assets (provided that the

transfer of such an asset in the absence of

other assets will not be a trade or

business);

• Any excess of the total paid for the

assets over the aggregate book value of

the assets (other than goodwill or going

concern value) as shown in the

purchaser's financial accounting books

and records; or

• A license, a lease agreement, a

covenant not to compete, a management

contract, an employment contract, or other

similar agreements between purchaser

and seller (or managers, directors,

owners, or employees of the seller).

Cat. No. 29292S

Consideration. The purchaser's

consideration is the cost of the assets.

The seller's consideration is the amount

realized.

Fair market value. Fair market value is

the gross fair market value unreduced by

mortgages, liens, pledges, or other

liabilities. However, for determining the

seller's gain or loss, generally, the fair

market value of any property is treated as

being not less than any nonrecourse debt

to which the property is subject. Also, a

liability that was incurred as a result of the

acquisition of the property is disregarded

to the extent that such liability was not

taken into account in determining the

basis in such property.

Classes of assets. The following

definitions are the classifications for

deemed or actual asset acquisitions.

Class I assets are cash and general

deposit accounts (including savings and

checking accounts) other than certificates

of deposit held in banks, savings and loan

associations, and other depository

institutions.

Class II assets are actively traded

personal property within the meaning of

section 1092(d)(1) and Regulations

section 1.1092(d)-1 (determined without

regard to section 1092(d)(3)). In addition,

Class II assets include certificates of

deposit and foreign currency even if they

are not actively traded personal property.

Class II assets do not include stock of

seller's affiliates, whether or not actively

traded, other than actively traded stock

described in section 1504(a)(4). Examples

of Class II assets include U.S.

Government securities and publicly traded

stock.

Class III assets are assets that the

taxpayer marks to market at least annually

for federal income tax purposes and debt

instruments (including accounts

receivable). However, Class III assets do

not include:

• Debt instruments issued by persons

related at the beginning of the day

following the acquisition date to the target

under section 267(b) or 707;

• Contingent debt instruments subject to

Regulations sections 1.1275-4 and

1.483-4, or section 988, unless the

instrument is subject to the noncontingent

bond method of Regulations section

1.1275-4(b) or is described in Regulations

section 1.988-2(b)(2)(i)(B)(2); and

• Debt instruments convertible into the

stock of the issuer or other property.

Class IV assets are stock in trade of

the taxpayer or other property of a kind

that would properly be included in the

inventory of the taxpayer if on hand at the

close of the tax year, or property held by

the taxpayer primarily for sale to

customers in the ordinary course of its

trade or business.

Class V assets are all assets other

than Class I, II, III, IV, VI, and VII assets.

Note. Furniture and fixtures, buildings,

land, vehicles, and equipment that

constitute all or part of a trade or business

(defined earlier) are generally Class V

assets.

Class VI assets are all section 197

intangibles (as defined in section 197)

except goodwill and going concern value.

Section 197 intangibles include:

• Workforce in place;

• Business books and records, operating

systems, or any other information base,

process, design, pattern, know-how,

formula, or similar item;

• Any customer-based intangible;

• Any supplier-based intangible;

• Any license, permit, or other right

granted by a government unit;

• Any covenant not to compete entered

into in connection with the acquisition of

an interest in a trade or a business; and

• Any franchise, trademark, or trade

name (however, see exception below for

certain professional sports franchises).

See section 197(d) for more

information.

The term “section 197 intangible” does

not include:

• An interest in a corporation,

partnership, trust, or estate;

• Interests under certain financial

contracts;

• Interests in land;

• Certain computer software;

• Certain separately acquired interests in

films, sound recordings, videotapes,

books, or other similar property;

• Interests under leases of tangible

property;

• Certain separately acquired rights to

receive tangible property or services;

• Certain separately acquired interests in

patents or copyrights;

• Interests under indebtedness;

• Professional sports franchises acquired

before October 23, 2004; and

• Certain transactions costs.

See section 197(e) for more

information.

Class VII assets are goodwill and

going concern value (whether or not the

goodwill or going concern value qualifies

as a section 197 intangible).

Allocation of consideration. An

allocation of the purchase price must be

made to determine the purchaser's basis

in each acquired asset and the seller's

gain or loss on the transfer of each asset.

Use the residual method under sections

1.338-6 and 1.338-7, substituting

consideration for ADSP and AGUB, for the

allocation of the consideration to assets

sold and assets purchased, respectively.

See Regulations section 1.1060-1(c).

The amount allocated to an asset,

other than a Class VII asset, cannot

exceed its fair market value on the

purchase date. The amount you can

allocate to an asset is also subject to any

applicable limits under the Internal

Revenue Code or general principles of tax

law.

Consideration should be allocated as

follows.

1. Reduce the consideration by the

amount of Class I assets transferred.

2. Allocate the remaining

consideration to Class II assets, then to

Class III, IV, V, and VI assets in that order.

Within each class, allocate the remaining

consideration to the class assets in

proportion to their fair market values on

the purchase date.

3. Allocate consideration to Class VII

assets.

If an asset in one of the classifications

described above can be included in more

than one class, choose the lower

numbered class (for example, if an asset

could be included in Class III or IV, choose

Class III).

Reallocation after an increase or decrease in consideration. If an increase

or decrease in consideration that must be

taken into account to redetermine the

seller's amount realized on the sale, or the

purchaser's cost basis in the assets,

occurs after the purchase date, the seller

and/or purchaser must allocate the

increase or decrease among the assets. If

the increase or decrease occurs in the

same tax year as the purchase date,

consider the increase or decrease to have

occurred on the purchase date. If the

increase or decrease occurs after the tax

year of the purchase date, consider it in

the tax year in which it occurs.

Allocation of increase. Allocate an

increase in consideration as follows.

1. Allocate the increase in

consideration to Class I assets.

2. Allocate any remaining amount of

consideration to each of the following

classes (Class II, III, etc.).

The number of classes may vary

depending on the year of the acquisition.

Increase the amounts previously allocated

to the assets in each class in proportion to

their fair market values on the purchase

date (do not allocate to any asset in

excess of its fair market value).

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If an asset has been disposed of,

depreciated, amortized, or depleted by the

purchaser before the increase occurs, any

amount allocated to that asset by the

purchaser must be properly taken into

account under principles of tax law

applicable when part of the cost of an

asset (not previously reflected in its basis)

is paid after the asset has been disposed

of, depreciated, amortized, or depleted.

Allocation of decrease. Allocate a

decrease in consideration as follows.

1. Reduce the amount previously

allocated to Class VII assets.

2. Reduce the amount previously

allocated to Class VI assets, then to Class

V, IV, III, and II assets in that order. Within

each class, allocate the decrease among

the class assets in proportion to their fair

market values on the purchase date.

You cannot decrease the amount

allocated to an asset below zero. If an

asset has a basis of zero at the time the

decrease is taken into account because it

has been disposed of, depreciated,

amortized, or depleted by the purchaser

under section 1060, the decrease in

consideration allocable to such asset must

be properly taken into account under the

principles of tax law applicable when the

cost of an asset (previously reflected in

basis) is reduced after the asset has been

disposed of, depreciated, amortized, or

depleted. An asset is considered to have

been disposed of to the extent the

decrease allocated to it would reduce its

basis below zero.

Specific Instructions

For an original statement, complete Parts I

and II. For a Supplemental Statement,

complete Parts I and III.

Enter your name and taxpayer

identification number (TIN) at the top of

the form. Then check the box for

Purchaser or Seller.

Part I—General

Information

Line 1. Enter the name, address, and TIN

of the other party to the transaction

(purchaser or seller). You are required to

enter the TIN of the other party. If the other

party is an individual or sole proprietor,

enter the social security number. If the

other party is a corporation, partnership, or

other entity, enter the employer

identification number.

Line 2. Enter the date on which the sale

of the assets occurred.

Line 3. Enter the total consideration

transferred for the assets.

Instructions for Form 8594 (Rev. 11-2021)

Part II—Original Statement

of Assets Transferred

Line 4. For a particular class of assets,

enter the total fair market value of all the

assets in the class and the total allocation

of the sales price. For Classes VI and VII,

enter the total fair market value of Class VI

and Class VII combined, and the total

portion of the sales price allocated to

Class VI and Class VII combined.

Line 6. This line must be completed by

the purchaser and the seller. To determine

the maximum consideration to be paid,

assume that any contingencies specified

in the agreement are met and that the

consideration paid is the highest amount

possible. If you cannot determine the

maximum consideration, state how the

consideration will be computed and the

payment period.

after an increase or decrease in

consideration and When To File, earlier.

Give the reason(s) for the increase or

decrease in allocation. Also, enter the tax

year(s) and form number with which the

original and any Supplemental Statements

were filed. For example, enter “2021 Form

1040.”

Paperwork Reduction Act Notice. We

ask for the information on this form to carry

out the Internal Revenue laws of the

United States. You are required to give us

the information. We need it to ensure that

you are complying with these laws and to

allow us to figure and collect the right

amount of tax.

Complete Part III and file a new Form 8594

for each year that an increase or decrease

in consideration occurs. See Reallocation

You are not required to provide the

information requested on a form that is

subject to the Paperwork Reduction Act

unless the form displays a valid OMB

control number. Books or records relating

to a form or its instructions must be

retained as long as their contents may

become material in the administration of

any Internal Revenue law. Generally, tax

returns and return information are

confidential, as required by section 6103.

Instructions for Form 8594 (Rev. 11-2021)

-3-

Part III—Supplemental

Statement

The time needed to complete and file

this tax form will vary depending on

individual circumstances. The estimated

burden for individual taxpayers filing this

form is approved under OMB control

number 1545-0074 and is included in the

estimates shown in the instructions for

their individual income tax return. The

estimated burden for all other taxpayers

who file this form is shown below.

Recordkeeping . . . . . . . . . . . . .

11 hr.

Learning about the law or the

2 hr.,

form . . . . . . . . . . . . . . . . . . . . 34 min.

Preparing and sending the form

2 hr.,

to the IRS . . . . . . . . . . . . . . . . . 52 min.

If you have comments concerning the

accuracy of these time estimates or

suggestions for making this form simpler,

we would be happy to hear from you. You

can write to the IRS at the address listed in

the instructions for the tax return with

which this form is filed.